S&P 500 Index valuations under different interest rate regimes

Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 1963 to December 31, 2023. Inflation data as of November 30, 2023. The average price to earnings was calculated using the S&P 500 index from 1963 – December 2023. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. Inflation represented by the Consumer Price Index. The Consumer Price Index measures the average price of a basket of goods and services. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

Key Takeaways

  • High nominal interest rates have tended to contribute to lower price-to-earnings (P/E) multiples.
  • We do not expect meaningful long-term declines in P/E multiples. Historically, these have not adjusted lower until interest rates have reached significantly higher levels than current rates.